Litigation: Part 1—20 things to consider when negotiating arbitration provisions

Arbitration can be a valuable dispute-resolution tool where confidentiality is important, when you want to specify jurisdiction or venue, in consumer cases, and in consumer or employment-related class actions. It pays to be proactive by identifying those disputes that should be litigated in court and those disputes that should be arbitrated. Lack of clarity or a misunderstanding as to which disputes should be in arbitration and which ones should be fought in court could land a company in a trial or an arbitration that can have huge drawbacks, such as a class action that could have been avoided by a waiver clause or a lengthy arbitration that could have been dismissed through a dispositive motion.

A. An annual check-up of arbitration provisions or practices

Performing an annual check-up using the checklist below can help highlight any weaknesses that have come to light in your arbitration agreements in the previous year and can help gauge how effective arbitration has been for you as a dispute-resolution tool.

B. The checklist

Specify whether the dispute will be decided by a single arbitrator or a three-arbitrator panel, who the arbitrator will be, or define the characteristics of the arbitrator or the panel. For example, do you wish the arbitrator to be a former judge, or a person with a construction or accounting expertise? Do you want the pool to include people who have a certain amount of experience trying cases or a particular sub-specialty, such as tax or M&A practice?

Specify the location of the arbitration hearing.

Specify whether the arbitrator is to determine the arbitrability of the claims.

Specify applicable law with respect to both the enforceability of the arbitration agreement and to the underlying dispute (i.e. state law or federal law—which could make a difference on enforceability of class action waivers).

Consider including entry of judgment language.

Consider including a timetable to get to the hearing and a time limit for the hearing itself to improve efficiency and speed (i.e. arbitration hearing shall occur within 120 days of the case management conference and hearing shall not last longer than four business days).

If there is potentially an inequality of bargaining power between the parties to the arbitration agreement (employment or consumer matters), specify that the company will pay for the arbitration costs.

Specify whether any equitable relief (such as an injunction) can be issued.

Specify whether the arbitrator must award attorneys fees to the prevailing party in vendor or business customer arbitration agreements or whether the arbitrator shall have the discretion to do so. If so, define prevailing party within the arbitration agreement.

Assess whether to include a class action waiver in both employment arbitration agreements and consumer arbitration agreements in light of the most recent cases interpreting AT&T Mobility v. Concepcion.

In our next column, we’ll list the next 10 things to consider when negotiating or drafting an arbitration provision, including issues regarding discovery, dispositive motions and appeal.